Twitter and Zynga Grow Up -- and Now Want Tax Dodges and Keys to the Car

Last Updated Mar 18, 2011 3:09 PM EDT

It's so heart-warming to see precocious young companies such as Twitter and Zynga grow up and make money (well, at least one of them). And in that high tech corporate rite of passage, the two want to follow the footsteps of such leaders as Microsoft (MSFT) and Amazon (AMZN) -- and get themselves exempted from some taxes that affect others.

Specifically, Twitter and Zynga want an exemption from San Francisco's 1.5 percent payroll tax, which technically includes gains from employee stock options although the city apparently hasn't enforced the provision since 2004. Mike Arrington of TechCrunch (AOL) insists that the city might as well actively try to drive the companies away and pities the poor companies trying to avoid paying the tax. But why?

Handing the keys to the "job creators"
Arrington seems to take the view of Microsoft and Amazon: that cities or states or even countries should be so thankful that companies provide jobs that the firms should be able to do whatever they like. Amazon has been incredibly aggressive in avoiding the collection of sales taxes, threatening to pull physical distribution operations out of states like Texas if they insisted that the company collect tax on sales made to citizens in the states.

Microsoft has reportedly used subsidiaries in Nevada to avoid hundreds of millions of dollars in royalty payments it would otherwise owe under Washington state law. Google (GOOG) has turned the foreign subsidiary dance into an art form that let it cut taxes by $3.1 billion over a three year period.

Major tech companies and those in other industries are currently lobbying for a temporary tax break to repatriate a portion of the $1 trillion in profits that they keep overseas. CEOs like John Chambers of Cisco (CSCO) argue that the break could result in the creation of as many as 2 million jobs. Except, as Peter Coy and Jesse Drucker at Bloomberg report, a similar break offered in 2004 resulted in little job creation or investment.

Tax breaks for wealthy investors
In many cases, a company will threaten or hint that it will have to move and take jobs with it should taxes be levied. When it comes to Twitter and Zynga, Arrington argues that San Francisco is a collective ingrate:
The city isn't thanking Twitter for bringing all these high paying jobs to San Francisco, either. Rather, some supervisors don't want the tax break at all, and seem quite willing to see Twitter bail to tax-free Brisbane. Says Supervisor John Avalos: "Who are the [Twitter] investors? Probably some of the wealthiest people in this country. And we are giving them more wealth." The stupidity of that statement is self evident.
Is it really? As Tom Forenski argues in the Silicon Valley Watcher blog, maybe no one should have to thank companies for providing jobs since that's what companies do -- along the way, creating revenue and sometimes, making their founders, investors, and managers filthy rich:
Why should Twitter, for example, be exempt from paying payroll taxes for six years? (a current proposal). Twitter and Zynga employees work and live in San Francisco. The taxes go to support the employees by providing essential services to the very communities in which they live. Has anyone asked them if they'd rather work in Brisbane? Or that their employer avoid supporting their communities? There are plenty of other places to work.
I'd add three other points:
  1. The reward for entrepreneurship success and wealth, not being thanked.
  2. Why are direct expenses like salaries and offices and servers and even elaborate employee perks costs of doing business and worth paying for, but not the local infrastructure that makes doing business possible?
  3. The tax laws were in place before Twitter or Zynga even existed, let alone set up shop in San Francisco. Companies that are so dead set against facing a particular location's tax structure should open their doors elsewhere at the start.
Companies make decisions, don't consider them enough thoroughly enough, and then are outraged that the rules that apply to everyone else might apply to them. Do convenience stores, restaurants, dry cleaners, gas stations, television repair shops, and other ordinary businesses have to pay the taxes? Because, collectively, they probably provide many more jobs to a much wider range of people. Or are people in high tech somehow supposed to be better than everyone else?

Related: Image: Flickr user alancleaver_2000, CC 2.0.
  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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